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Barr's Winning Bid

The pharmaceutical wins its tug-of-war for generic drug firm Pliva.

The battle for Croatian generic drug company Pliva, waged between Barr Pharmaceuticals(NYSE:BRL) and Icelandic generic company Actavis, is finally over. Yesterday, after the market closed, Actavis finally cried uncle, announcing that it would not raise its bid a fourth time for Pliva.

So unless we see another last-minute entrant into the bidding war, Barr should capture Pliva with its latest $2.5 billion bid last week.

Despite being outbid, Actavis is not a total loser in the Pliva bidding contest. Actavis had smartly been buying up shares of Pliva over the past year, so it now owns nearly 21% of the company. At the very least, Actavis has benefited from the strong appreciation in Pliva shares over the past couple of months.

When I wrote about Pliva last week, I focused mainly on the opportunity that the company offered Barr. The acquisition also brings some possible problems, though.

As I mentioned last time, Pliva's future prospects with increasing generic sales, and the possible blossoming of the generic biopharmaceutical industry in the next couple of years, are both tempting reasons for its acquisition. Contrasting the sales growth in Pliva's generics business with the company's stagnating overall sales numbers in the last year emphasizes this point:

Total Sales

Y-O-Y Growth

Generics as portion of sales

Q2 06

$246

1%

91%

Q1 06

$286

4%

77%

Q4 05

$240

-1%

87%

Q3 05

$225

20%

79%

Q2 05

$243

7%

79%

All sales in millions.

By bringing Pliva into the fold, Barr will become the world's third-largest generic drug company, after Novartis(NYSE:NVS) and Teva(NASDAQ:TEVA). The Pliva acquisition's potential benefits depend on how fast Pliva's generic sales grow, and on the fate of the biogeneric industry in the U.S. and elsewhere. (Pliva owns a state-of-the-art facility capable of producing biogeneric drugs.)

Barr has a lot on its plate this year, with the potential launch of multiple large generic drugs and several patent lawsuits in the mix. With the Pliva acquisition expected to occur in November of this year, things won't slow down for Barr anytime soon. Investors would be smart to watch for any potential teething problems from the much larger and busier Barr.